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Reevaluating The New Economy

Daily Policy Digest

Economic Issues

Thursday, October 18, 2001

Recent weak economic growth has prompted some economists to question the theory that information technology has ushered in a new era of strong and nearly unbroken productivity gains -- such as characterized the period 1995-2000.

The consulting firm McKinsey & Co. is among the skeptics:

  • It concludes that the strong productivity gains of the late 1990s were concentrated in only 30 percent of the private sector -- and are likely to be whittled away in coming months and years.
  • The Labor Department had originally pegged the productivity growth rate at 2.8 percent a year in the late 1990s -- a figure it later lowered to 2.5 percent.
  • But McKinsey economists believe the long-term rate will fall back to about 2 percent.
  • Productivity growth during the period 1973-95 averaged about 1.4 percent.
McKinsey says nearly all the surge in the 1995-2000 period was concentrated in six sectors -- retail, wholesale, telecommunications, securities, the assembly of computers and the manufacture of semiconductors.

Source: Louis Uchitelle, "Deepening Wrinkles in the New Economy," New York Times, October 17, 2001.

For NY Times text
http://www.nytimes.com/
2001/10/17/business/17PROD.html

For more on the Economy
http://www.ncpa.org/iss/eco/
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